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State Name: Texas
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State Name lower underscore: texas
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State Abbreviation: TX
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If you've been following the MBS Commentary, you know what a big deal this afternoon could be. Markets have been preparing for it for weeks and MBS Live members have been on top of those movements every step of the way.

This afternoon, when markets are convulsing mere milliseconds after the Fed Announcement, MBS Live members will know what's going on before anyone else. The accuracy and speed of our real-time price stream and alerts is unmatched.

It took 3 consecutive days of pushing into the weakest levels in more than 3 years for bond markets to figure out how to rally by more than a token amount. 10yr yields were 3.5bps lower by the time the 3pm close hit and Fannie 3.5 MBS were 6/32nds stronger at 101-15 (or .19 stronger at 101.47).

When we get rallies of this size in the midst of sell-offs such as the one that's been in force so far in 2018, we can't really read too much into them on day 1. We should expect periodic corrections in the midst of such negative trends and view further rally potential with a skeptical eye. That's not to say it can't or won't happen--simply that it's not the safe way to play the game we find ourselves in.

As for specifics, one refreshing feature of today's rally was a fairly linear connection between fundamental data and the bond market movement. Specifically, the Bank of Japan (BOJ) kept its policy rate unchanged and BOJ President Kuroda pushed back on speculation that ramped up last week suggesting the bank might be moving toward tightening policy soon. That helped bonds improve overnight and kept things generally positive in the morning.

The afternoon brought a very strong 2yr Treasury auction. That's a blessing and a curse because high demand for 2s can also suggest lower demand for longer-term bonds like 10yr Treasuries (which correlate more directly with MBS, of course). Indeed there was some pressure on 10s and MBS following the auction, but they found their footing without breaking meaningfully into yesterday's range. That technical bounce just before 2pm was probably the most promising market movement of the day for us. At the very least, it lets us know to keep an eye on 2.634% as an overhead ceiling/lock-trigger.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

Matthew Graham : "That said, there is always room for speculation in certain cases. This will be the highest-risk/highest-reward option and isn't for the faint of heart."

Matthew Graham : "Impossible to know if MBS will improve later in the week. What we do know is that the general trend has favored locking for more than a month now, and that we're waiting on signs of a stronger bounce before questioning that."

Tom Hodges : "short term, would you lock right now? Or is there anticipation of MBS improvement later in week?"

Matthew Graham : "solid demand for 2's could be a negative indicator for 10's and MBS. In today's case, doesn't look like a big deal"

About the Author

A former originator, Matthew began writing for Mortgage News Daily in 2007, covering a wide range of topics. Seeing a need in the marketplace, his focus increasingly shifted toward relating MBS and broader financial markets for loan originators.
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